Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Chapter 7, Problem 8RQ
To determine
The reason for the equilibrium in the
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Unit Activity: Mathematical Models and Investments
Part D
Jacob lost his job and now has to buy health insurance on his own. Why are his premiums likely to increase?
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Part E
Describe a person who would not need life insurance.
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Elaborate the saving function with the proper diagram to support your answer
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a)
Explain the quantity theory of money.
Assume that Elike raises $5,000 in cash from a yard sale and deposits the cash in his checkingaccount at the Bank of Uchenna. By how much does the money supply immediately change as aresult of like's deposit?
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- b. Using appropriate diagram, explain how is money market equilibrium determined in the short run.arrow_forwardThe _demand for money arises from the need to hold money as a medium of exchange. This demand for money is a function of Select one: a. transaction; interest rates O b. precautionary; national income O c. transaction; national income O d. speculative; interest ratesarrow_forwardhow might this change in interest rates and the supply of money affect the value of money? What happens in the circular-flow-diagram if borrowing money becomes expensive for businesses and consumers? What happens to employment?arrow_forward
- Q.1.6 Which of the following will cause the demand curve for money to shift to theright?(a) An increase in real Gross Domestic Product (GDP).(b) A decrease in the repo rate.(c) An increase in the quantity of money available.(d) A decrease in the quantity of money available.Q.1.7 A budget deficit occurs when: (a) there is an increase in taxation.(b) government spends less than is generated by taxation.(c) government spending is very high.(d) Government spends more than is generated by taxation.arrow_forwardIF 5a 5. Using appropriate models or theories, explain the economic intuition (logic) behind the following events. a. A decrease in money supply leads to a rise in short-run interest rate.arrow_forwardBy using graphs, show and explain how an increase in money supply can affect the goods market by taking the link between two markets into account.arrow_forward
- In the liquidity-preference theory of interest, the quantity of money demanded forspecultative purposes will ordinarily: A. increase with a rise in the interest rate B. increase with a fall in the interest rate C. Decrease with a fall in the interest rate D. Remain constant when the interest rate risesarrow_forwardThe government decides that the use of credit cards is bad, and introduces a tax on creditcard balances. That is, if a consumer or firm holds a credit card balance of X (in real terms), heor she is taxed tX, where t is the tax rate. Determine the effects on the equilibrium price andquantity of credit card balances, the demand for money, and the price level, and explain yourresults.arrow_forwardWhat is the difference between the price of oil in the market for oil and the price of reservesin the market for reserves? How are those two prices related to one another? Which of the twoprices is expected to grow over time at the interest rate?arrow_forward
- What does the term exogenous money supply mean? a. The money supply is determined by external factors b. The money supply is controlled by households c. The money supply is determined by the central bank d. The money supply is determined by market forces.arrow_forwardWhich of the following will lead to an increase in the equilibrium interest rate in the money market? a. Increase in general price level O b. An increase in income O c. Decrease in general price level d. The Central Bank increases money supplyarrow_forward1. Suppose that the economy has the following money supply and demand equations: Money Supply: M = 8000Money Demand: M= 10,000 – 40,000rwhere money is in billions of dollars and interest rates, r , is written as a decimal(e.g., an interest rate of 10% would be written as .1 in the equation).A. Determine the equilibrium interest rate and quantity of money.B. What will happen in the money market if the interest rate is currently 10%?What is the amount of excess supply of or excess demand for money?C. Show in graph that at this interest rate (10%) there is disequilibrium in themoney market.arrow_forward
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